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Auditing Situations

 Auditing Circumstances Research Newspaper

Additional Instances

for the Course

The case readings had been developed entirely as a basis for class discussion. The case blood pressure measurements are not designed to serve as a source of major data or perhaps as an illustration of effective or ineffective auditing.

Reprinted by permission from Jay C. Thibodeau and Deborah Freier. Copyright В© Jay C. Thibodeau and Deborah Freier; all privileges reserved.

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Circumstance

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Enron

Enrori's First Few Years

hi~ 1985 Enron had assets along the three significant stages of the supply string of nat ural gas: production, indication, and distribution. Natural gas was produced from deposits found subway. The gas was transmitted via water pipe lines, or perhaps networks, of underground water lines, and distributed directly both to commercial customers in order to regional gas utilities, which then distributed the gas to smaller businesses and customers. Several companies in the market had property related to certain activities within the supply chain. For example , several companies held pipelines nevertheless did not produce their own gas. These companies often entered into

Enron 2000 twelve-monthly report, p. 7.

Frederick F. Berardino, remarks to U. S i9000. House of Representatives Committee on Finance, December 12, 2001.

Bala G. Dharan and Bill It Bufkins, " Warning flags in Enron's Reporting of Revenues and Key Economic Measures, ” March the year 2003, prepublication draft (~. ruf. rice. edu/—bala/files/dharan-bufkins_ enronjed_flagsS4l 003. pdfl, g. 4.

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178 Section Six Comprehensive Company Circumstances

long-term " take or perhaps pay” deals, whereby that they paid for lowest volumes later on at prearranged prices against supply shortages. In early 1986 ]lnron reported a loss of $14 million due to the first year. As a result, the company employed several cost-cutting procedures, including layoffs and pay stalls for top professionals. Enron also started providing off possessions to reduce it is debt. However, Enron's financial circumstances was still hopeless in 1987. That yr Moody's reduced its credit history to gunk bond status. 4

Influence of Significant Industry Change on Enron

Enron faced significant difference in its industry environment as a result of government's decision in the mid-1980s to deregulate the when highly controlled industry. The us government, which had dictated the amount paid pipeline companies paid for gas and the prices they could charge their customers, decided to permit the market pushes of supply and demand to influence prices and volumes offered. As part of this pro cess, the government necessary that pipeline companies provide " open access” to their pipelines to other companies wanting to transport natural gas, so that pipeline businesses would not have an unfair competitive advantage. your five

Enron's Gas Pipeline Business

Enron designed by providing available access to the pipelines—that can be, charging other firms for the right to use all of them. It also had taken advantage of to be able to gain available access to pipelines owned by other companies. For example , in 1988 Enron signed a 15-year agreement with Brooklyn Union to offer gas to a plant becoming built in Ny. Because Brooklyn Union has not been connected to Enron's pipeline sys tem, Enron needed to contract with an additional pipeline organization to transport the gas to Brooklyn Union. Enron was therefore if, perhaps added hazards related to the trans portation of the gas. The long-term nature with the contract was also high-risk because rates could rise to a level that would associated with contract unprofitable. 6

Enron Expands in to Natural Gas Trading

and Financing

Enron capitalized on the intro of marketplace forces in to the industry by becoming linked to natural gas trading and auto financing. Enron offered as a great intermediary among producers that contracted to trade their gas to Enron and gas customers that contracted to purchase gas by Enron. Enron collected since Bethany McLean and Peter Elkind, The Smartest Guys in the Room: The Amazing Surge and Scandalous Fall of Enron (New York: Penguin Group,...

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